RIL takes 40% stake in US gas project for $1.7 billion

The investment is expected to scale up to $3.50 billion over 10 years, according to the company

Making a breakthrough in the US, Reliance Industries today said that it will invest $1.70 billion in a joint venture with Atlas Energy Inc to produce gas from shale, sedimentary rocks, in the Marcellus region.

The investment would be scaled up to $3.5 billion over the next 10 years, RIL CFO Alok Agarwal said.

Reliance will take 40% stake in the 300,000-acre Marcellus shale gas project, which spans parts of Pennsylvania, West Virginia and New York and could hold enough natural gas to satisfy US demand for a decade.

Nasdaq-listed Atlas will hold the remaining 60% and also the operatorship. RIL had earlier unsuccessfully bid for acquiring controlling stake in bankrupt chemical maker LyondellBassel.

It bid $14.5 billion for Lyondell but the offer was vetoed by creditors who filed a rival revival plan.

Flush with revenues from its eastern offshore KG-D6 gas field back home, the Mukesh Ambani-run firm has been on the lookout for acquisitions in the United States. Separately, its twin refineries at Jamnagar in Gujarat are looking at directly selling fuel into the US.

"Reliance Marcellus LLC (a subsidiary of RIL) has executed definitive agreements to enter into a joint venture with US based Atlas Energy Inc, under which Reliance will acquire a 40 per cent interest in Atlas’ core Marcellus Shale acreage position,” the company said in a statement.

The Indian firm will pay $339 million in cash to close the deal and foot Atlas’ drilling cost of up to $1.36 billion.

“The (300,000 acres) acreage will support the drilling of over 3,000 wells with a net resource potential of about 13.3 trillion cubic feet gas equivalent,” the RIL statement said, adding that the deal is expected to be closed by the month end.

Shale gas is natural gas stored in organic-rich sedimentary rocks. It is considered an unconventional source as the gas may be attached to or “adsorbed” onto organic matter. The gas is contained in difficult-to-produce reservoirs that require special completion, stimulation and/or production techniques to achieve economic production.

In addition to funding its own 40% of drilling obligations, Reliance has agreed to fund 75% of Atlas' respective portion of drilling and completion costs until the $1.36 billion drilling carry is fully utilised, Atlas said in a separate statement.

“Under the framework of the joint venture, Atlas will continue acquiring leasehold in the Marcellus region and Reliance will have the option to acquire 40% share in all new acreages,” Reliance said. “Reliance also obtains the right of first offer with respect to potential future sales by Atlas of around 280,000 additional Appalachian acres currently controlled by Atlas (not included in the present joint venture).”

Meanwhile, Reliance Industries has also informed oil regulator DGH that four smaller gas finds surrounding the D-1 and D-3 fields in the Krishna-Godavari basin can be commercially exploited. RIL has informed the oil regulator Directorate General of Hydrocarbons (DGH) that four smaller gas finds, surrounding the D-1 and D-3 fields, which are currently producing around 62 mmscmd of gas, can be commercially exploited, sources said.
 

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Mad bull snorts

Money continues to gush in, irrespective of nosebleed valuations

The market was up today, taking a cue from strong global indices. The BSE Sensex was up 218 points (1.2%) to close at 17,933 and the Nifty closed at 5,361, higher by 57 points (1.08%) from the previous close.

The market started on a high note today. The early gains were pared in the morning session. However, a bullish sentiment was present in the bourse throughout the day as the market rebounded from its low to reach the intraday high during afternoon trade.

Most Asian stocks edged up on Friday, led by overnight gains on Wall Street as strong US retail sales data boosted confidence in recovery in the world’s biggest economy. European markets were up, despite the troubles in Greece being far from resolved.

Chinese stocks rose on renewed optimism that Beijing may be getting closer to allowing the yuan to appreciate against the US dollar. The key benchmark indices in China, Japan, Taiwan, Hong Kong, and Singapore rose by 0.25% to 1.56%. The key benchmark indices in South Korea and Indonesia fell by 0.31% to 0.54%.

US markets were up on strong retail sales data. The Dow gained 29.55 points (0.27%) to 10,927.07. The S&P 500 rose 4 points (0.34%) to 1,186. The Nasdaq added 5 points (up 0.23%) to 2,436. An official from the US Federal Reserve indicated that interest rates would remain on the lower side for a longer period of time to help the economy to recover.

South Korea kept its interest rates at a low level of 2% and said that this regime is required to bring the economy back on track. After a spree of buying, foreign institutional buyers were less active on Thursday. They were net buyers of Rs62 crore. Domestic institutional investors were net sellers of Rs93 crore. The rupee was up on strong domestic markets and the weakness of the dollar.

Shree Ganesh Jewellery House (down 37%) listed on the bourses today. It had priced the initial public offer at Rs260 at the lower price band of Rs 260-Rs270 per share. Maruti Suzuki India (down 0.4%) has said that it does not have adequate capacity to meet with the growing demands for its cars. Private Equity firm CX Partners has bought 8% stake in Monnet Ispat (up 0.8%) for Rs150 crore from the secondary market. Tata Steel (up 0.8%) and NMDC will jointly develop two steel projects in Karnataka and Chhattisgarh. HEG (up 0.68%) plans to raise Rs400 crore by selling equity to invest in capacity expansion and for working capital requirements. Rise in crude oil prices has propped up oil stocks of companies involved in oil exploration. Jaiprakash Associates (up 2.57%) plans to sell about 165 apartments at its project ‘Jaypee Greens Wish Town’ at Noida, near New Delhi, at a minimum price of Rs3.30 crore each. The project comprises 4,100 square feet apartments, adjacent to a golf course. Shakti Pumps (up 5.5%) has received an order from the Maharashtra Electricity Distribution Company for supply of 3,530 energy-efficient pumps for an agricultural pilot project in Sholapur. Jet Airways (up 6.6%) is likely to increase its fares. BGR Energy (up 0.4%) has said that it has a current order book of Rs10,150 crore. Telecom stocks were up as the 3G auction commenced today. Telecom operators are competing for a total of 71 3G slots on offer in India’s 22 telecom circles which is to be followed by a separate auction of broadband spectrum, one of the world's biggest such auctions in recent years.

For the ninth week in a row the market has ended higher. We are headed for another correction, possibly a longer one next week.

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